Inflation is often described by central banks as a sign of economic dynamism when it is "controlled." Yet, it represents a far more insidious reality: a constant and silent diminution of the purchasing power of money. This phenomenon does not merely increase the price of your consumer basket; it acts as an invisible tax on dormant capital, eating away at the real value of your savings year after year.
In a macroeconomic context marked by unprecedented monetary expansion, understanding the mechanics of inflation is no longer an option; it is a fundamental imperative for your wealth. Why will €100,000 today not allow you to buy the same quantity of goods in ten years? How do monetary policies directly influence your investment capacity?
In this article, we will explore how, in the face of the depreciation of fiat currencies like the Euro and the Dollar, programmatically scarce assets like Bitcoin emerge not as speculative instruments, but as reliable tools for preserving value.
Understanding Inflation: Beyond the Simple Rise in Prices
Inflation is often misunderstood as a simple, inevitable rise in prices where everything becomes more expensive and there is nothing we can do about it. Yet, according to the official definition by INSEE, inflation is above all a loss of the purchasing power of money. In other words, it is not so much that objects are gaining value, but that the monetary unit is losing it.
Definition and measures: the consumer price index (CPI) vs. reality
According to the official definition by INSEE (National Institute of Statistics and Economic Studies), inflation refers to a "loss of the purchasing power of money that results in a general and sustainable increase in prices." In France, it is measured by INSEE, while in the EU, Eurostat produces a harmonized figure for all member states.
Its calculation is enabled by the Consumer Price Index (CPI). This index tracks the price evolution of a basket of goods and services considered to reflect the average consumption of a household: food, clothing, rent, electricity prices, gasoline, and related essentials.
Inflation is largely a 20th-century phenomenon
According to the economist Thomas Piketty, inflation is largely a 20th-century phenomenon. His research shows that in France, Germany, the United Kingdom, and the United States, inflation remained close to 0% throughout the studied period between 1700 and 1913, which was the year the American central bank, the Federal Reserve (Fed), was created.
During this period, currencies derived their value from a certain scarcity guaranteed by precious metals, particularly gold, which served as a standard for the global economy until its partial abandonment during World War I and its total cessation in 1971.
From that date on, currency became "fiat" (or fiduciary), meaning it was no longer linked to a physical reserve and relied solely on the decisions of central banks. Its creation was therefore no longer limited by a physical quantity of precious metal, which once served as an indispensable safeguard.
According to Piketty’s findings, France then experienced an average inflation rate of 13% per year between 1913 and 1950, which amounts to a 100-fold multiplication of prices. Between 1950 and 2012, the average rate oscillated between 2% and 10% per year, peaking at 13.7% in 1974.
Inflation: a phenomenon primarily monetary in origin
To understand the drop in purchasing power, one must first identify the source of the problem. Nobel laureate in Economics Milton Friedman analyzed it as a direct link of cause and effect: "Inflation is always and everywhere a monetary phenomenon."
In clear terms, inflation is not a fatality linked to rising prices, but the consequence of an increase in the quantity of money in circulation. No longer constrained by the gold standard, central banks like the ECB can massively expand the money supply. When this money supply exceeds real demand and wealth production, the value of the currency drops.
What is crucial to understand, therefore, is that inflation is not prices increasing, it is actually the value of money decreasing.
Monetary Policy and the Expansion of the Money Supply
The interest rate mechanism
The money we know today is primarily credit-based money. When a central bank cuts its key interest rates, it reduces the cost of borrowing. This encourages commercial banks to grant more loans to individuals and businesses. Since loans make deposits in our financial system, every new borrowing increases the total quantity of money in circulation. If this money creation occurs faster than the growth of real production, the value of each existing euro mechanically declines.
Quantitative Easing (QE) or asset purchasing
Since the crises of 2008 and 2020, central banks have used Quantitative Easing. This process consists of creating money to buy back debt securities, often government bonds, on the open markets. This massive injection of liquidity aims to keep rates low and sustain the financial system. However, it triggers an unprecedented expansion of the money supply that ultimately translates into a price surge in assets, such as real estate and stocks, and later consumer goods.
The link between public debt and currency value
The value of a fiat currency depends on the solvency of the state that issues it. When public debt becomes too high, the state has two options: raise taxes or reduce the real value of its debt through inflation. By allowing the money supply to grow, the central bank enables the state to repay its creditors with a devalued currency. This mechanism is advantageous for indebted entities, but it acts as an invisible tax on holders of dormant capital and liquid savings.
Where Does This Permanent Price Hike Come From?
Monetary illusion: why you get poorer while believing you are saving
The danger is what economists call "monetary illusion." If you leave €100,000 in a bank account or a savings book and inflation is at 5%, you still see €100,000 on your screen, but your real savings are silently melting away.
At its peak in October 2022, inflation reached 11.5% in the European Union (EU) according to Eurostat. Behind this figure lies a stark reality: at this pace, any wealth held in euros sees its value cut in half every four years alone. Although it returned to around 3% in May 2024, inflation remains a predatory mechanism on your savings that is vital to understand, anticipate, and shield yourself from.
Inflation: a tax on low-income households
By reducing the purchasing power of money, inflation eats away at savings held in currency units. It is the lowest-income households that tend to keep their savings in monetary value. The least wealthy 25% of French citizens hold more than 90% of their savings in the form of bank deposits or cash denominated in euros, such as Livret A accounts, unlike middle-class households who invest in real estate, and the wealthiest who invest in financial assets.
Beyond savings, inflation is also a powerful way to diminish the value of a debt denominated in currency units, thereby lightening its burden, which benefits indebted individuals and entities.
Is this a windfall for the less affluent? Not really. Credit is mostly granted to entities deemed solvent, meaning most often the wealthy, or states judged reliable. Moreover, the real estate capital of the middle class and the wealthiest is generally built using bank debt, which the lowest-income households cannot claim.
Inflation is therefore a redistribution of wealth from low-income households to the wealthiest. Individuals owning real estate or stocks can benefit from the rise in their nominal value while seeing their debt automatically lightened, to the detriment of low-income households and salaried employees who only have fixed incomes.
The Impact on Your Wealth: The Risk of "Cash"
The necessity of diversification into "scarce" assets
In an economy where the money supply continuously expands, holding all of your wealth in a bank account amounts to accepting a capital loss. In this context, "Cash" is no longer a safe haven; it is an asset that guarantees a loss.
To protect your capital, the optimal strategy consists of shifting toward assets whose supply cannot be controlled by an institution. This is where the concept of programmed scarcity comes into play.
The long-term survival of wealth relies on acquiring deflationary or supply-limited assets. Unlike traditional flow currencies, these assets derive their value from their physical or technological scarcity, such as premium real estate, precious metals, and fine art. Because they cannot be printed at will, they act as receptacles of value: they do not go up, it is the paper currency facing them that dilutes.
Bitcoin: a solution against inflation?
With a maximum quantity fixed at 21 million units, Bitcoin acts as a safeguard against monetary instability. Where central banks practice the expansion of the money supply according to changing political needs, Bitcoin enforces absolute mathematical scarcity. This limit is not a promise subject to arbitrariness, but a rule engraved in a decentralized and immutable computer code. Just as one cannot print gold, one cannot create new Bitcoins beyond the limit set by the software.
Independent of the traditional financial system, it remains immune to institutional interventions. Faced with unlimited monetary printing, Bitcoin offers total predictability: the final supply and emission rate are known to all, forever. You are not betting here on a simple price hike, but on an algorithmic certainty designed to be the antithesis of fiat devaluation. It is also divisible down to the hundred-millionth fraction, making it accessible to all budgets.
Bitcoin vs. Gold: the digital version of the store of value
While gold has been the historical safeguard against inflation, Bitcoin offers an optimized version for the 21st century. It is frequently referred to as Digital Gold for several key reasons:
- Transferability: Unlike physical gold, which is heavy, complex to transport, and requires secure vaulting, Bitcoin moves at the speed of the internet.
- Divisibility: It is divisible up to eight decimal places, allowing it to be seamlessly used for any target amount.
- Verifiability: Anyone can audit the public blockchain to verify the existence of the 21 million units, whereas global gold supplies are mere estimates.
Bitcoin restores the store of value function that traditional currencies have lost. For an individual, it is the assurance that their savings will not be eaten away by inflation, offering stability that no longer depends on the hazards of shifting monetary policies.
From Enforced Currency to Chosen Savings
Inflation is not a fatality, but the consequence of a monetary system built on permanent expansion. In this context, keeping all of your savings in cash amounts to accepting a certain loss of purchasing power.
To protect the fruits of your labor, the solution is to shift from a currency that can be printed toward assets that cannot be copied. Whether through real estate, gold, or Bitcoin, scarcity is your only real protection against the erosion of your wealth.
Today, securing your financial future no longer requires just saving, but carefully choosing the medium of those savings. By taking back control over the scarcity of your assets, you take back control over your savings.
FAQ
What is the difference between inflation and devaluation?
Although both concepts describe a loss of value, their origin differs. Inflation is a generalized increase in prices, often due to an expansion of the money supply, that reduces what you can buy with the same sum of money. Devaluation, on the other hand, is a political decision or a market adjustment where a currency loses value relative to another currency or a baseline like gold. In short: inflation eats away at your purchasing power daily, while devaluation weakens your currency on the international stage.
Why is Bitcoin considered a "hedge" against inflation?
Bitcoin is qualified as a hedge because its monetary policy is completely disconnected from central bank decisions. Unlike the Euro, whose quantity can increase indefinitely, the supply of Bitcoin is technically capped at 21 million units. During periods of heavy money printing, investors seek assets with a fixed supply to avoid dilution. Bitcoin plays this role of a digital safe haven because it is mathematically impossible to create more to absorb a debt.
What percentage of one's wealth should be allocated to scarce assets?
There is no single answer, as it depends on your risk profile. However, many financial analysts suggest an asymmetric allocation: dedicating between 1% and 5% of one's wealth to scarce and volatile assets like Bitcoin. This strategy allows you to benefit from a strong potential upside in the event of a major currency devaluation, while limiting the impact on your overall savings if the market undergoes a correction. The idea is to own insurance without jeopardizing your financial stability.
